Will The Housing Crash Be More Devastating Than The Early 90s?

[TonyTeacake]

It looks like mortgages approvals have falling off a cliff from last summer.

Morgage Approvals
Aug 22 = 74443
Sep 22 = 66785
Oct 22 = 58018
Nov 22 = 46112
Dec 22 = 35612

You can see from the interest rate chart the rise in interest rates for mortgages has hampered affordability for most people.

The pendulum has now swung from a sellers to buyer's market. With 8% of the market being cash buyers this won't be enough to stop property prices from going down further as there isn't enough demand due to mortgage approvals falling substantially and there is so much more stock coming on the market with not enough buyers. Lower affordability means one thing house prices have to come down much further. Supply is now outstripping demand.
You can see this chart by RICS Chart: New Buyer Enquiries & New Vendor Instructions.

Also if we look at average wages they are not keeping up with inflation which you can see in the chart below.

To sum it up with inflation proving to be sticky we can expect more interest rate hikes this year which is only going to affect the affordability of people buying houses even more. It looks like this crash has already started and I expect YOY average drops for 2023 to be around 10-15% with further drops going into 2024.

Please share your thoughts.

What is HPC? x

Several posters have mentioned it. Indeed, it always seems to get mentioned by the same posters who seem obsessed with it! It's the House Price Crash forum. There was one previous poster who was obviously a member as he/she made obvious from their username but I don't think anyone else is.

All true although I don't the declining population was unforeseen. I think successive governments have chosen to ignore it and import people from other countries instead. Of course, the very people who are the most vocally anti immigration also have no ideas about where the tax will come from and most certainly don't want their housing wealth taxed. I doubt The Tory party will instigate this but Labour might and it is very likely that The Tories will be out at the next election.

Thanks

I think one of the bitter ironies of Brexit is that the old (who in theory should be interested in suppressing wages so they have cheaper services like care homes, and want increasing house price wealth - to a degree fueled by overpopulation) should have been against it and the young (who should be interested in reducing the competition for labour, thus boosting wages and their earning power and housing costs through reduced immigration) should have been for it.

They got it completely the wrong way round. That's people and their understanding of economics for you.

Thank you. Sounds ghastly x

“I think one of the bitter ironies of Brexit is that the old (who in theory should be interested in suppressing wages so they have cheaper services like care homes, and want increasing house price wealth - to a degree fueled by overpopulation) should have been against it and the young (who should be interested in reducing the competition for labour, thus boosting wages and their earning power and housing costs through reduced immigration) should have been for it.”

The young need to start voting more. If every young person had voted in the Referendum who knows what way it may have swung?
Politicians will keep appealing to the grey vote if the young don’t think it is important enough to stay on the electoral role or even show up to vote. Politicians are self interested and want to be popular and re-elected. Young people need to get up an vote with their feet.

It is going to be interesting to see what policies Labour and the Tories come up with in the next 18 months to tackle the housing market. One thing is sure though - nobody expected exponential growth during the Covid years and so in hindsight, the prolonged stamp duty holidays really were not required. It fuelled an out of control boom which does not really help anyone because some people will have overextended because of it and will now be paying for it.

One could argue that enough has already been done - interest rates have gone up substantially, small time landlords are selling up due to a combo of regulatory changes (mortgage interest not deductible, fear of no fault evictions being phased out, fear of rent control etc - what I call the Green Eyed Monster Fear that so many Tories have)- but in reality, many small time landlords want to cash out and shove their cash in the bank at a hassle free 5% now (much less risk with an FSC guarantee and no potential tenant “trash the place” or default liability).

I think all we really need is actual help for the young without trapping them into extortionate interest rates. If the politicians go in too strong we could end up with another Covid years issue aka unexpected overall performance of the property market. It seems the smallest intervention in the UK property market can fuel another boom because that is what people ultimately want in the UK.

And I don’t blame them for it - it is much cheaper to have old people in secure paid off housing than having to worry about pensions for all which also include substantial rental fees.

No one knows exactly what will happen, I can take a guess that prices will fall, then stagnate, as higher interest rates driving mortgage payments higher, alongside high inflation and a rising cost of living will reduce the amount people can borrow and supress prices. Unfortunately I don't have a crystal ball to know if that guess is correct! Low interest rates drove the increase in prices, I don't think they will go to below 1% again, although they may come down in the future from the current rate.

I thought it would fall before 2010, bought when it did fall as I could then afford a house and wanted somewhere to live. Bought again in the late 2010s, thinking that was the top of the market but needed more space and could afford the repayments, the low rates allowed us to overpay. Very much not the top of the market. I think 2022 probably was the top of the market, given the economic situation and the price reductions. I love a good look on Rightmove, I've noticed that things aren't shifting as quickly and there are more reductions where there weren't any before. I have been very lucky, it has been more luck than anything. Something as important as housing shouldn't be down to luck. I couldn't afford to buy now.

If the govt. are going to pay people’s interest payments to keep them housed, then it should be secured by a further charge on the house, or by way of a loan.

“If the govt. are going to pay people’s interest payments to keep them housed, then it should be secured by a further charge on the house, or by way of a loan.”

Potentially yes, but there is also the possibility to make interest payments due on a main house tax deductible somehow. Why should some people work all hours, pay huge taxes to support those who benefitted from anomalous tax exemptions on their main house equity and retired early? Does not make sense either.

Can we make rent tax deductible too?

@ThankmelaterOkay - well everything could be done if there was the will - but it would require a hell of a lot more HMRC staff to check everyone’s tax returns properly. However, conceptually it would be better to treat individuals more like companies and let them have a certain amount of deductibles for essentials at agreed rates and then only tax them on actual profits. Like companies.

@Intergalacticcatharsis I don’t see why someone buying a house should get a tax break. Any incentives generally just increase prices to neutralize them (see HTB).
Introducing CGT against profits ( and removing STP ) or just another big increase in IHT would be easier.

I don't entirely understand how removing the tax exemption from the sale of primary homes would help the market. Surely it would just put people off moving even more (stamp duty and other expenses associated with house buying already disincentivise many people)? As people have mentioned upthread, the lack of supply - that is, the lack of suitable, often family-sized housing coming on the market - has sustained prices for many years. Restricting it will create even more bidding wars and a febrile sellers' market.

“I don't entirely understand how removing the tax exemption from the sale of primary homes would help the market.“

Government would have to remove it and introduce an initially low CGT rate specific to property e.g 2-5% token amount. With a view to potential increases further down the line. That would get people moving - the fear of further increases. Once a tax is reintroduced, the only way tends to be up. And this really is an anomalous exemption given how much money people are actually sitting on.

It is absurd that some elderly people live in too big homes and get help with energy bills whilst many families and young children are in overcrowded unsuitable housing. It is just not in the best interests of society as a whole.

Do other countries experience this issue? Olds refusing to downsize or is it a U.K. centric issue?

In many other countries it's normal for the older people to live with and be looked after by family

Which is also not wanted by the vultures waiting for them to die

in the USA, property taxes are directly correlated to the property value. My uncle pays 10,000 dollars per annum in property tax for his house in California (worth around a million).. That is a good incentive to downsize if you are retired!

In wealthy asian countries, most families live in apartments and actually they prefer living in modern housing. In Japan for example, flats are torn down after 50 years due to constantly improving earthquake regulations. So i guess people would 'naturally' downsize.

Council taxes are meant to be reflective of the house value here

But they are not. my MIL's council tax is £1750 per annum for a 3 bed house in London. My colleague who lives in a 1 bed flat in Reading pays in excess of £2000.

Even if you have a 20 million house in London, council tax at most is £3600 per annum. if you have a decent pension, you wouldn't sell your house just because of that level of council tax.

I vaguely recall reading that council tax bands were calculated on floor area, excluding kitchens and bathrooms, and by the value of the last sale before it came into force. It replaced the poll tax after the riots.

In most of the countries where it is traditional to care for older family members in the home, they tend to have shorter lifespans as the countries are still developing. It is easier to care for someone if they live until age 70 as opposed to age 90.

In the East Asian countries where this is still practiced (Singapore, Hongkong, Taiwan), there is also reliance on foreign domestic helpers which do the main grunt work while the adult children 'supervise'. My grandma still ended up in a care home though as the domestic helper my parents hired caught dengue fever.

There's a ridiculous number of anomalies in regional council valuations. Most of London pays less than the provinces.

A property tax would be interesting because it would probably be pretty much as hated as the poll tax. But the people doing the hating would largely be the older people, so the riot police wouldn't have such a tough job.

My guess is it would have to be phased in gradually because there are a lot of people living in huge houses who are effectively completely skint, so any reasonable tax on them would largely be unpayable.

I could imagine some two faced millennials rioting when they realised their potential inheritance was being handed over to the govt